‘I’ll Buy’
“The vast majority of these expenditures are captured in operating expenses,” the company said in the statement. “The classification difference does not make any difference to the bottom line.”
Richard Kinder said he’s bought 1 million more shares of the partnership since September. “You sell, I’ll buy, and we see who comes out best in the long run,” he said on a Jan. 15 conference call with analysts and investors. The company declined to make Kinder available for an interview.
MLPs are expanding into industries that may pose new dangers for investors. Historically, the partnerships have been pipeline companies. Demand for higher-yielding investments is encouraging energy companies and private-equity firms that have qualifying assets -- sometimes called “MLP-able” -- to spin them off. So MLPs are branching out into offshore drilling, oil refineries, shipping and other businesses.
Unique Metrics
Some can be volatile because they directly depend on the price of oil and gas. That means their payouts may vary more than those of the traditional MLPs that investors are accustomed to, said Chris Eades, a managing director of New York-based ClearBridge Investments LLC, who oversees MLP mutual funds.
MLPs use unique financial metrics defined by the companies themselves. The nonstandard accounting has caught the attention of the U.S. Securities and Exchange Commission, Julie Hilt Hannink, head of energy research at New York-based CFRA, an accounting adviser, said in an interview. Linn Energy LLC, an oil- and gas-drilling MLP, disclosed an SEC inquiry into its accounting last year. The inquiry is ongoing, Clay Jeansonne, a Linn spokesman, said in an e-mail. SEC spokesman John Nester declined to comment.
Distribute Cash
MLPs don’t pay corporate income tax and are required by law to draw at least 90 percent of their revenue from natural resources such as oil and gas. Unlike real estate investment trusts, or REITs, MLPs don’t have to distribute all available cash. Still, that’s usually their policy.
In most MLPs, managers have discretion to determine how much cash to distribute to shareholders. Some companies distribute more cash than they take in, according to Jim Cunnane, a managing director of Advisory Research Inc. in St. Louis who oversees $4.5 billion in MLP investments. While that rarely happened five years ago, it’s becoming more common, he said.